Neutral NTPC Ltd For Target Rs.366 by Motilal Oswal Financial Services Ltd
Valuations inexpensive but execution to watch out for
* NTPC (standalone)’s reported 3QFY25 EBITDA came in 2% above our estimates, though adjusted PAT was below due to a higher-than-expected tax rate and previous year-related adjustments. Profitability at the PAT level was also hit by adverse movement in regulatory deferral account balances of INR3.6b. Gross generation was up 2% YoY in 3QFY25 while plant availability across both coal and gas plants improved on a YoY basis. Under-recovery in the coal-based plants stood at INR4.7b in 9MFY25 and is likely to decline to INR3b by the end of FY25.
* We believe that overall execution has remained slow. Also, the conventional capacity (thermal + hydro) commissioning targets have been downgraded to 2.1/2.2GW in FY25/FY26 (from the 2.7/4.0GW guidance given in the 9MFY24 earnings call).
* At the NGEL level, only 0.5GW capacity has been commissioned in 9MFY25 vs. the FY25/26 guidance of 3/5GW. Lastly, we also note that subsidiary NGEL is already trading at the higher end of the 10-15x FY27 EV/EBITDA for RE generation players, and execution slippages could potentially lead to a de-rating. We currently value NTPC Green at INR65/share, at a 25% discount to its current market price.
* We reiterate our Neutral rating on NTPC with a TP of INR366.
EBITDA in line; PAT marginally below due to a higher tax rate
* NTPC reported a standalone revenue of INR413.5b in 3QFY25, 4% above our estimate of INR397b (+5% YoY). EBITDA came in at INR119.6b (+20% YoY) for 3QFY25, which was 2% above our estimate.
* Adjusted standalone PAT was 4% below our estimate at INR46b (+6% YoY), mainly due to a higher-than-expected tax rate and previous year adjustments.
* The average tariff was INR4.68/unit in 3QFY25 vs. INR4.57 in 3QFY24.
* Operational highlights:
* The company's gross power generation was 91BU, 2% higher than 89BU in 3QFY24. Plant availability for coal plants was 89.5% (3QFY24: 86%).
* Coal plant PLF was ~76% in 3QFY25, in line with 3QFY24.
* PLF for hydro plants improved to 22% (3QFY24: 21%) while it fell for gas plants to 3.4% (3QFY24: 7.7%).
* Coal production from captive mines for commercial use rose 36% YoY to 10.9MMT (3QFY24: 8.09MMT).
* The Board declared a second interim dividend of INR2.50 per share for FY25 (Record date: 31st Jan’25).
Highlights of the 3QFY25 performance:
Operational highlights:
* The NTPC Group generated 327BU in 9MFY25, up 4% from 315BU in 9MFY24. Standalone generation also grew 4% to 278BU in 9MFY25 compared to 268BU in 9MFY24.
* PLF of four NTPC stations was 76.20% (9MFY25), significantly higher than the national average of 67.20% for other stations.
* Overall, 7 NTPC stations ranked among the top 15 stations in India.
Financial highlights:
* Standalone basis: 9MFY25 total income was INR1,286b, up 6% YoY; PAT stood at INR138.7b, up 11% YoY.
* Consolidated basis: 9MFY25 total income was INR1,397b, up 6% YoY; PAT was INR160b, up 8% YoY.
* Standalone regulated equity (as of 31st Dec‘24) was INR902.8b (+7% YoY) and consolidated regulated equity (as of 31st Dec‘24) was INR1,058b (+5%YoY).
* A second interim dividend of INR2.50 per share was declared for FY25. Other highlights:
* Management is actively considering the awarding of 7.2GW of thermal capacity by FY27 (all of this would be under JVs).
* The target is 60GW of renewable energy by 2032.
* Reported under-recovery of INR4.68b from its coal-based plants during 9MFY25 and anticipates a reduction in UR to below INR3b in 4QFY25.
* BHEL-related challenges are being resolved, with the Urja I project commissioned and Patratu Unit 1 and North Karanpura Unit 3 expected by 4Q.
Valuation and view
* Our TP of INR366 for NTPC is based on:
* Value of INR226 for the standalone business at Dec’26E P/B of 2.2x.
* Value of INR19 for other subsidiaries and INR51 for JV/associates at Dec’26E P/B of 2.0x.
* The stake in NGEL is valued at a 25% discount to the current market price.
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